Hungry times

Posted in development, disaster, economics, labour, macro by jrahman on June 27, 2020

For most people, macroeconomic indicators are gobbledegook — what does the difference between 5% and 8% GDP growth mean?  For most people, economic indicators that matter are the ones that animate dinner table conversations — jobs and incomes, and the cost of living.  In the advanced economies with higher quality data, it is jobs numbers that resonate most — one might not understand what GDP stands for, but it is very clear what a rise in the unemployment rate means if one’s neighbour has been laid off.

In developing economies with large informal sectors, however, quality employment numbers are hard to come by in real time.  Data on the prices of essentials — proverbial chaal, daal, tel, noon — are much more readily available, as are wage rates of different types of workers.  Mix those essentials and voila, there is a plate of khichuri.  Using the data on prices and wages, we can calculate the number of plates of khichuri an average worker could afford a day.


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Diagnosing a crisis

Posted in disaster, economics, institutions, macro by jrahman on May 5, 2020

As the COVID-19 pandemic fanned out of China, emerging and developing countries around the world were hit by a pandemic of capital flight.  Since January, about $100 billion left these countries ­ — an unprecedented sum, three times in magnitude than was the case in the equivalent period in late 2008.  Stock prices stumbled, while the yield on emerging market bonds rose sharply.  Investors fled the emerging markets seeking the safe haven of US dollar denominated assets, without discriminating between the countries they were fleeing.

In more recent weeks, a sense of calm seems to have returned to the markets.  Capital outflows have subsided, and bond yields have stabilised.  Bangladesh was spared the worst in March-April.  As markets start differentiating risks again, the question arises: how vulnerable is Bangladesh to a currency crisis?

A debilitating currency crisis is to an economy what a cardiac arrest is to the human body.  Just as there is a sudden stop of the flow of blood in the latter, in the former there is a sudden stop in capital flow into an economy (or sudden withdrawal of capital).  In both cases, the sudden stop could lead to disastrous consequences.  Neither is precisely predictable — if enough of the symptoms are visible, then a sudden stop is likely being experienced.  But in both cases, we can look at the underlying fundamentals and judge how much at risk the patient is.

The good news is that with luck, Bangladesh may well avoid the worst should there be another outbreak of capital flight.  For example, a recent analysis by the Economist judged that Bangladesh is not at risk of an imminent currency crisis.  The bad news is that we failed to tackle a range of issues during the good times, leaving us more vulnerable than might be recognised.  There isn’t any cause for panic, but there is much to worry about.


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The two-handed people

Posted in economics, macro by jrahman on January 9, 2020

বাংলাদেশের অর্থনীতিবিদেরা …. বলতেছে, ক্রাইসিস আছে আবার সম্ভাবনাও আছে। তাই যেই দিকেই অর্থনীতি যাক, ঊনারা বলতে পারবেন ।  আমি কিন্ত, আগেই বলছিলাম।  (Bangladeshi economists …. are saying there is crisis, but there is also potential.  So, whichever way the economy goes, they can claim — I told you so.)

A brilliant autodidact he may be, but if the renowned Facebook pundit / activist  Zia Hassan had any idea about economics, he probably wouldn’t have made the above statement.

For one thing, economists are notorious for not reaching unanimity on major questions.  Take the financial markets for example.  Just a few years ago, Eugene Fama and Robert Shiller jointly won the Bank of Sweden Prize (aka Economic Nobel) — except the former claimed that financial markets are efficient and things like bubbles can’t really exist, whereas the latter has shown why and how bubbles form quite frequently.

More fundamentally, economics is fundamentally about trade offs, choices, and opportunity costs.  And anyone trained in that discipline instinctively thinks about ‘on the other hand’.  This is a feature, not bug, of economists’ thinking.  Not for nothing that former American president Harry S Truman hankered for a one-handed economist!

Turning to Bangladesh, there is absolutely nothing contradictory about seeing potentials and risks — the two are not mutually exclusive.  Bangladesh has achieved remarkable economic progress in the last 30-40 years.  One can quibble about the exact magnitude, precise causes, and to whom the credit should accrue.  But progress has been made and there are potentials for more — to deny this is nonsense.

And yet, the realisation of that potential is not guaranteed.  There are many challenges that need to be overcome.  Specifically, and immediately, there are problems with non-performing loans in the state-owned banks.  This is clearly recognised by anyone who has looked at the data.  But is it crisis?  I am not aware of any economic model or tool that would allow one to accurately forecast a financial crisis.  Even in the advanced economies such a feat is not possible — the data is simply too infrequent and imprecise.  Beware of anyone making such a forecast — they are more likely to be a Facebook pundit than an economist.

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Perfomance anxiety

Posted in economics, institutions, macro, micro, political economy, Uncategorized by jrahman on December 21, 2019

Under Article IV of the IMF’s Articles of Agreement, a team of Fund staff visits each member country once a year, collects economic and financial information, and holds extensive discussions with officials on policy matters.  This is then published in its website.  The latest Article IV report for Bangladesh came out in September, stating that Failure to effectively address the problems in the banking system, including high non-performing loans pose a medium likelihood risk to the economy, with a medium-to-high impact in the near term if it hit — High and increasing non-performing loans and low capital adequacy would hamper the banking sector’s ability to finance business investment, add fiscal burden, and hamper growth.

Let’s unpack this.  In doing so, we are going to look at official data.  Yes, there is considerable scepticism about the veracity of official figures.  But official data is all there is to go on, and nihilism of trust nothing but one’s gut instincts is not analysis. As it happens, even official data tell a potentially scary story.


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The 2020 outlook

Posted in economics, macro by jrahman on November 8, 2019

When trying to get back to the habit of writing, it is useful to start with something that is in one’s comfort zone.  That, for me, is obviously the economy, except it has been years that I have seriously read or paid attention to the Bangladesh economy.  I guess doing a post on the macroeconomic state of play months out from the new decade is a good excuse to read up on the subject.

Back when I used to think about this stuff more regularly, 7-8 per cent growth was considered outlandish.  In its October World Economic Outlook, the IMF forecasts Bangladesh’s economy to grow by over 7 per cent a year on the back of remittance inflows into the next decade, coming off recent high of 8 per cent.  Inflation is expected to be around the Bangladesh Bank’s target of 5½, and strong export growth is expected to underpin a sustainable current account deficit.


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Bangladesh Paradox

Posted in development, economic history, economics, macro, political economy by jrahman on February 24, 2019


A new initiative, led by Asif Shibgat Bhuiyan.

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Basu’s bizarre bakwas

Posted in development, economics, macro, political economy by jrahman on May 6, 2018
Rubbish, Worthless, Nonsense, Silliness
(Urban Dictionary)

Upon being asked by a friend whether I had read Kaushik Basu’s recent piece on Bangladesh, my first reaction was — is that the rather lazy piece on why Bangladesh is doing well?

Let me note my gratitude to the friend for pushing me to read the piece. It is, to use the favourite adjective of Bangladesh’s Finance Minister, just bogus.  Out of respect for my personal interactions with the author, I will refrain from using that term.  But this bizarre article should still be debunked.


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Apocalypse later, maybe

Posted in development, economics, macro by jrahman on October 21, 2017

As I read about the 19th Congress of the Chinese Communist Party, it occurred to me that throughout my professional career, for some reason or other, I have had to think about the consequences of a hard landing in the Chinese economy.  It also occurs to me that I first started thinking about Bangladesh towards the end of graduate school — that is, I first fretted about an economic crisis in our People’s Republic before I ever thought about the other one.  Then I remembered this cautionary note about China (and India), which apply just as well to Bangladesh.

In its just released World Economic Outlook, the IMF forecasts Bangladesh economy to grow by 7% a year over the next few years.  It has been a while since I looked at the detailed data, so I am not in a position to comment on whether the IMF is too optimistic.  Look at the chart below, and think about whether 7% growth would be too optimistic?


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Posted in economics, labour, macro, society by jrahman on June 19, 2016

Ramadan fasting is like no other Islamic ritual.  In the month of Ramadan, those who never perform the pre-dawn Fajr prayer get up even earlier to eat, only to abstain until dusk.  And after a month of that, even those who would otherwise never set foot in a mosque line up in unison to kneel towards Mecca.   For an entire month, from cooking, attire, TV to intimacy — the very lifestyle of a billion plus people change.  Except perhaps the aversion to pork, observance of, or at least respect to, the Ramadan fasting is arguably the most ubiquitous characteristic of Muslims.

Given its prevalence and ubiquity, Ramadan must have observable economic impacts.  Exactly what might they be?  In a fascinating paper, Filipe Campanile and David Yanagizawa-Drott of Harvard’s Kennedy School provide us with some answers.*  Summary — fasting makes us happier, if poorer.


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Khichuri index

Posted in economics, labour, macro by jrahman on December 24, 2015

A staple of political rhetoric in Bangladesh is to ensure affordability of rice, lentil, oil and salt.  Throw in a kilogram of coarse rice, 250 grams of red lentil, 40 ml soya bean oil and 10 mg salt and we get a rather bland plate of khichuri.  CEIC Asia database provides monthly retail prices of these essentials in Dhaka with a lag.  Currently, the latest data point is August 2014.  Still, using the bland recipe and prices (and smoothing the data by taking a 12-month moving average), we can get a sense of how the price of our plate of khichuri has evolved over time — for example, when BNP was turfed out in January 2007, such a plate cost around 35 taka, which rose to around 60 taka when the Awami League returned to power in January 2009, and was around 70 taka when its five year term expired.

Of course, to say anything sensible about prices, we need to have a sense of income.  From the same source, we can get daily wage of a skilled factory worker.  Her wages went from around130 taka a day in January 2007 to over 210 taka two years later to over 300 taka further five years on.

Putting the two together, we can get what I am going to call the Khichuri Index — plates of khichuri an average industrial worker can buy in Dhaka.  The chart below shows how the index has evolved between January 2000 and August 2014 (the period I have data for).



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